Monday, January 29, 2007

Investors, Caution: Biologics Have Side Effects Too

Centient Biotech Investor submits: It is generally assumed that biological substances are intrinsically less toxic than small molecule drugs. And it is not just doctors and patients who share this notion. Biologics sail through approvals quicker, and they get to market sooner than small molecules do.

These differences are the main reason small companies like biologics. They can hope to bring biologics to market, whereas none would even contemplate doing the same with a small molecule drug. The process is just too involved.

These ideas about safety and lack of toxicity are so widely held that nobody thought bad things could happen to Elan (ELN) and Biogen-Idec (BIIB)'s new drug for multiple sclerosis before its approval. And when Tysabri was withdrawn, many were stunned that a biologic apparently could have serious side-effects. This may also be one of the reasons why so many over-reacted to the news. Tysabri is coming back to the clinic, albeit in a more restricted way.

It is not that people thought these molecules were totally harmless. It was always well understood and well publicized that any protein drug or vaccine could cause hypersensitivity reactions or even an occasional severe or deadly anaphylactic shock. But apart from these rather rare complications, most thought that, being natural products, biologics would do no harm per se. Furthermore, some biologics are just used to replace or supplement existing natural substances, so what could be the harm in that?

Biologics' Loss of Innocence
It seems biologics are losing their innocence and very quickly so. As more people start using these drugs and they are entering the mainstream of medicine, it appears that biologics will be no different from other drugs. It may well have been the rather restricted use so far that has lulled everyone into thinking biologics are safer. Maybe there is really no difference in terms of unwanted and potentially harmful or deadly side-effects between biologics and small molecules. A biologics' provenance in nature seems to provide little advantage in these matters.

Just this week Genentech (DNA) posted a Dear Doctor letter warning of increased risk of stroke when using blindness drug Lucentis. The increased risk was most noticeable in the higher dose category, but that is precisely where all the marketing and all the prescriptions are. Genentech says it is not sure Lucentis causes stroke but there were many more strokes in people using the drug than controls. The difference was statistically very significant. Lucentis is an anti-VEGF antibody used for "wet" age related macular degeneration. It is essentially a modified version of the company's anticancer drug Avastin, optimized for local intra-ocular use.

Bad News for Genetech and Amgen
The news is not good for Genentech, because Lucentis is actually performing better in the market than its cousin Avastin. Also, Avastin is used for cancer, an indication where doctors and patients have much higher tolerance for side-effects. Despite its clear efficacy, Avastin has disappointed some analysts with its slow growth. Not so, Lucentis. Until now, that is.

It is possible that Lucentis damages blood vessels as it has been found that vascular endothelial growth factor [VEGF] is needed to support existing vessels as well as to grow new ones. Damaging a vessel's interior lining could certainly lead to occlusions and stroke. It had already been noted that Avastin increased the risk for heart attacks and strokes (see story), and Genentech added a warning to that effect. It seems plausible the same could happen to Lucentis.

Amgen (AMGN) also had to admit this week that its newer epoetin version Aranesp increases the risk of death when used to treat certain cancer patients. It had been noted before that correcting anemias in kidney failure patients to normal levels of hemoglobin led to increased complications and death. An article in the New England Journal of Medicine in November of last year found that kidney patients treated aggressively had a 34% higher risk of heart problems or death. And that is a case where doctors are essentially using an almost identical version of a natural hormone to correct a disease to near normal conditions.

The experience has prompted renal specialists to re-evaluate how to treat kidney patients and how much to treat them. In this latest trial by Amgen, patients whose anemia was caused by cancer were targeted. So far, Aranesp and the older epo-versions are only approved for anemias caused by chemotherapy for cancer. Amgen had clearly hoped to expand its label to those patients whose cancer is causing anemia. But it now appears that this may not be a safe thing to do.

It also seems clear that everyone is a bit overconfident in biologics when it comes to side-effects and toxicity. The fact that some of these products are near-identical versions of existing hormone and natural factors apparently does not mean it is safe to use them in all cases. Not even when such use only attempts to correct a well documented deficit or problem in a seemingly "natural" way.

While Amgen and Genentech remain two of our favorite large biotechs, their performance this week illustrates how negative news regarding a single block buster drug in a company's portfolio can create large swings in value. Investors would also do well to be a bit more cautious when it comes to side-effects for biologics in general. Now that these drugs are entering bigger markets and more common indications, we could well see a surge in adverse effects that may lead to warnings or even withdrawals. It is no longer safe to assume that a biologic can just expand its market forever by adding more and more indications without worrying about adverse effects.

Disclosure: Centient management holds a position in Genentech shares and does consulting work for Genentech.